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classified into four categories: at regular intervals for a specified period of
• Public sector banks time.
• Private sector banks • Fixed deposits refer to a lumpsum amount
• Regional rural banks deposited by a customer for a specified
• Foreign banks period of time. Compared to all other
deposits, fixed deposits carry a high rate of
Popular Definitions of Commercial Bank :
interest.
Banking Regulation Act of 1949 : “Banking 2) Providing loans and advances :
means the accepting, for the purpose of lending Commercial banks mobilize savings
or investment, of deposits of money from the and lend these funds to institutions and
public, repayable on demand or otherwise, and individuals for various purposes. Based on
withdrawable by cheque, demand draft, order or the tenure, loans include call loans, short
otherwise.”
term, medium term and long term loans.
Prof. Cairncross : “A bank is a financial Longer the duration of the loans, greater will
intermediary, a dealer in loans and debts.” be the rate of interest. Besides this, banks
Functions of Commercial Banks : also provide cash credit, overdraft facility
1) Acceptance of deposits : Deposits constitute as well as discount bills of exchange.
the main source of funds for commercial 3) Ancillary functions : Commercial banks
banks. Savings lead to the creation of also provide a range of ancillary services
deposits. Deposits are categorized as (i) such as transfer of funds, collection of
Demand deposits and (ii) Time deposits. money, making periodical payments on
i) Demand Deposits : Deposits that are behalf of the customer, merchant banking,
withdrawable on demand are known as foreign exchange, safe deposit lockers,
demand deposits. They are in the form D-mat facility, internet banking, mobile
of Current account and Savings account banking etc.
deposits. 4) Credit Creation : Credit creation is an
• Current account is usually opened by important function of commercial banks.
businessmen, corporations, industrial Commercial banks are creators of credit.
houses, trusts etc. They are provided Demand and time deposits constitute the
with overdraft facility. Overdraft means primary deposits of banks. After meeting the
withdrawal in excess of the balance in the reserve requirements out of the net demand
account. and time liabilities, the balance amount
is used for giving loans. Thus, secondary
• Savings account are operated by a large
number of people, particularly the salaried deposits or ‘derivative deposits’ are
class, small traders etc. who wish to save a created out of the loans given by the banks.
part of their income with the bank. For instance, when the bank provides loan
to its customer, the loan amount is credited
ii) Time deposits : Deposits that are repayable into the bank account of the customer. The
after a certain period of time are known bank that receives the loan amount as a
as time deposits. They are in the form of deposit, keeps aside a certain portion in the
recurring deposits and time deposits
form of reserves. After meeting the reserve
• Recurring deposit refers to a deposit requirements, the bank lends the remaining
wherein a customer deposits a fixed amount amount. This procedure is followed by the
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